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One new dark store in a day and a half. That works out to 18 new dark stores over the next 30 days. That’s how fast Dunzo is looking to establish a foothold in new cities. The target: set up base in 15 new cities by the year-end. Currently, it operates 120 dark stores across the eight cities. This wide partner base would be the backbone of its multi-city rollout plan. That apart, over the next two-three years, the platform will scale up its business in those pockets in top metro and tier-I cities that remain under-penetrated or unaddressed at the moment. Kabeer Biswas, CEO and co-founder, Dunzo, believes these are the cities that would witness the next stage of evolution in the retail shopping experience in the form of quick commerce or q-commerce.

Dunzo Daily, its instant delivery service arm launched in September 2021, fits right into this plan.

“We have been growing the Dunzo Daily category by 40-50% m-o-m, with the newer cities seeing 70-80% m-o-m growth. Along with growth, managing the operational efficiency and order throughput of our dark stores is a key focus area for us,” Biswas adds. Dunzo Daily contributes 60% to Dunzo’s overall business and the share is expected to increase to 80% by the end of this calendar year. “While other verticals continue to be an integral part of the business, their share is expected to be 20-25% of the overall business by the end of this calendar year, as we focus on growing the Dunzo Daily category,” he says. The company also offers a white label logistics service to merchants.

India’s q-commerce sector is expected to become a $5 bn (Rs 38,500 crore) market by 2025, according to RedSeer. Run-rate-wise, in Q1 of CY22, the platforms in the sector did around $1.5 bn (Rs 11,550 crore) annualised, says Rohan Agarwal, partner, Redseer Strategy Consultants. The biggest challenge staring at players now is increasing the order value per customer besides convincing those still sitting on the fence to take the plunge.

Over a fourth of Dunzo’s customers come from the satellite cities of Delhi NCR and Hyderabad. While he sees an addressable market of about five crore consumers in the q-commerce category, Biswas says there is a huge market out there for on-demand delivery of products other than consumables—products such as medicines, fresh flowers and so on. “We want to establish ourselves in on-demand grocery deliveries and then gradually expand to fulfilment of other adjacent categories,” he adds. Adjacent categories are convenience-led and require quick turnaround. Alcohol, OTC medicines, quick bites are the typical products in this category, and they require very different storage, packaging, and operational facilities. Biswas adds their potential depends largely on their ease of access. He says demand pull will come when one is able to expand the selection to a wide assortment of 3,000-4,000 SKUs.

Improving customer experience

Rajat Tuli, partner, Kearney, adds that the capabilities needed to serve these adjacent categories include sharp customer and data analytics, mechanisation of the dark stores to enable quick pick-up and delivery, lowering fulfilment costs and improving customer experience. In other words, how fast Dunzo is able to crack this segment will depend on how quickly it can deploy technology to make faster and better decisions and to remove operational bottlenecks.

That said, the key to running efficient dark stores—mini warehouses—is to first reduce the number of tasks and processes that need to be performed within such warehouses. To enable sustainable operations, it is essential for the mini-warehouses to be located in close proximity to the areas with maximum demand densities.

Apart from increasing warehousing facilities and delivery partners who can service the multiple needs, Rutu Mody Kamdar, founder, Jigsaw Brand Consultants, says, what will really help is a steady shift in consumer behaviour. This can be done by giving them a good reason to choose its app over the local kirana/medical stores through sharply targeted communication.

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Author: Howard Caldwell